5 Social Media Dos And Don'ts For Startups Looking For Funding

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Starting this week, startups and entrepreneurs can officially advertise their securities offerings to accredited investors, thanks to the SEC lifting the decades-old ban on general solicitation pursuant to the JOBS Act. This is one of the first steps in the merging of finance, social media, and the crowd. While social media marketing plays a crucial role in organizations' overall communications strategy, it is critical that businesses stay on the right side of the SEC when looking for capital.

The most commonly used social media platforms — Twitter, Facebook, LinkedIn — are easy and effective channels for a company to search for investors. But they are also minefields of liability. Even though social media brings an unparalleled level of transparency and access for fledgling startups — they must be SEC compliant when advertising online. Noncompliance is serious and may stop a company from raising capital with a 506(c) offering. In an effort to ensure businesses don't become a case study in securities fraud, we have assembled these easy-to-follow do's and don'ts of social media compliance:

1. File your Form D 15 days before advertising an offering of securities.

Before you send out that 140-character tweet or post on somebody's Facebook wall, make sure you have completed all administrative paperwork, which includes filing a Form D 15 days in advance. Only 506(c) offerings are allowed to "generally solicit" (publicly market themselves), and they are only allowed to accept accredited investors into their offerings. There are new investor verification standards as well that must be adhered to.

2. Alert any current investors you have before posting announcements and accomplishments on any social media platform.

According to SEC regulations, company announcements about milestones are okay as long as current investors are alerted beforehand. Therefore, it may be safe to assume that companies can share information on social media as long as they notify investors in advance. Moreover, it is particularly important that company executives understand the nuance between personal accounts and company social media accounts. Be aware that employees sending out a celebratory tweet about securing an investor may alienate others considering purchasing securities in the company.

3. Put your social media accounts on lock-down before, during, and immediately following a raise.

There are many things that private businesses (especially startups) do on a daily basis that are a part of their regular marketing efforts that are considered illegal during a raise. Startups especially are at risk as they have to make themselves look bigger in order to secure customers. An example of this is a business development member tweeting to a large company after a sales call. "Mr. X it was great speaking with you. I really look forward to working together." While this may seem harmless this could be considered a "misstatement" by the SEC as the account is not closed and they are not your clients. All employees, outside agencies, and anyone that touches your accounts needs to be trained before conducting a capital raise.

4. A picture is worth a thousand words.

We have all heard the saying a picture is worth a thousand words, and in securities marketing this is especially true. Every picture and video you post and share is a form of communication and gets you in hot water if the thousand words you are speaking are not accurate or truthful. Here is an example of how many startups could go astray: In today's virtual world, many people have virtual offices or work in co-working spaces. Taking a picture in a co-working space with dozens of people in the background and tweeting "Acme Company hard at work" would be a violation of securities laws, as there could be an argument that those investors would think all of the employees were yours. Don't even get me started on video!

With more info being distributed electronically, managers should ensure that the company is archiving social media and email. In addition, implementing more frequent reviews will save time and money if an issue were to arise. If you do make a mistake, put a disclaimer out in public again. For example, with the picture comment you could send another tweet stating that you love the time and money co-working saves.

In the end, the best path to take is to have everything you plan on sending reviewed by a legal professional. The lift on the ban of general solicitation has the potential to be a game-changer in how entrepreneurs acquire capital — but it also has the potential to create a good amount of risk. While the landscape of the crowdfunding industry is fast-paced and constantly transforming, it is essential for companies to keep up with the tempo of these changes and proposed regulations. Social media is a simple and cost-efficient way to reach potential investors. Just make sure your company is doing it right.

Alon Goren is the CEO and co-founder of InvestedIn, a leading provider of white label crowdfunding technology that specializes in social fundraising and corporate social responsibility campaigns.